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If Malaysia wants to maintain a fixed exchange rate of 1.25 ringgit per euro, it should ___ (drop down options are BUY or SELL) euros in the foreign exchange market. To be successful, this policy would have to ____ (drop down options are DECREASE THE DEMAND FOR, DECREASE THE SUPPLY OF, INCREASE THE DEMAND OF, INCREASE THE SUPPLY OF) euros by ___ billion Euros at any given exchange rate.

If Malaysia wants to maintain a fixed exchange rate of 1.25 ringgit per euro, it should ___ (drop down options are BUY or SELL) euros in the foreign exchange market. To be successful, this policy would have to ____ (drop down options are DECREASE THE DEMAND FOR, DECREASE THE SUPPLY OF, INCREASE THE DEMAND OF, INCREASE THE SUPPLY OF) euros by ___ billion Euros at any given exchange rate.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter29: Exchange Rates And International Capital Flows
Section: Chapter Questions
Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...
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If Malaysia wants to maintain a fixed exchange rate of 1.25 ringgit per euro, it should ___ (drop down options are BUY or SELL) euros in the foreign exchange market. To be successful, this policy would have to ____ (drop down options are DECREASE THE DEMAND FOR, DECREASE THE SUPPLY OF, INCREASE THE DEMAND OF, INCREASE THE SUPPLY OF) euros by ___ billion Euros at any given exchange rate. 

EXCHANGE RATE (Ringgit per euro) Homework (Ch 14) 6. Exchange rate crisis The following graph shows the market for euros in terms of the Malaysian ringgit. The market is initially in equilibrium at 1.25 ringgit per euro and 25 billion euros traded per day. Suppose the ringgit falls in value, causing investors to sell their ringgit-denominated assets and to sell ringgit for euros in order to buy euro-denominated assets. As a result, the demand for euros shifts to the right, from De to D. 2.50 2.25 Supply 200 1.75 1.50 1.25 1.00 0.75 0.25 10 15 20 25 20 35 45 50 QUANTITY OF EUROS (Billions)
Transcribed Image Text:EXCHANGE RATE (Ringgit per euro) Homework (Ch 14) 6. Exchange rate crisis The following graph shows the market for euros in terms of the Malaysian ringgit. The market is initially in equilibrium at 1.25 ringgit per euro and 25 billion euros traded per day. Suppose the ringgit falls in value, causing investors to sell their ringgit-denominated assets and to sell ringgit for euros in order to buy euro-denominated assets. As a result, the demand for euros shifts to the right, from De to D. 2.50 2.25 Supply 200 1.75 1.50 1.25 1.00 0.75 0.25 10 15 20 25 20 35 45 50 QUANTITY OF EUROS (Billions)
WOFR (LH 14) 0.25+ 25 QUANTITY OF EUROS (Bons) 20 30 40 If Malaysia wants to maintain a fixed exchange rate of 1.25 ringgit per euro, it should euros in the foreign exchange market. To be successful, this policy would have to euros by billion euros at any glven exchange rate. In this type of situation, a speculative attack may occur if investors believe which of the following statements? O Malaysia is running out of euro reserves. O The demand for Malaysian goods is going to dramatically increase. O Malaysian assets are soon goling to increase in value. True or False: In the event of a successful speculative attack, foreign investors tend to suffer because Malaysian businesses are less able to pay their foreign debts. O True O False
Transcribed Image Text:WOFR (LH 14) 0.25+ 25 QUANTITY OF EUROS (Bons) 20 30 40 If Malaysia wants to maintain a fixed exchange rate of 1.25 ringgit per euro, it should euros in the foreign exchange market. To be successful, this policy would have to euros by billion euros at any glven exchange rate. In this type of situation, a speculative attack may occur if investors believe which of the following statements? O Malaysia is running out of euro reserves. O The demand for Malaysian goods is going to dramatically increase. O Malaysian assets are soon goling to increase in value. True or False: In the event of a successful speculative attack, foreign investors tend to suffer because Malaysian businesses are less able to pay their foreign debts. O True O False
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